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MCI Emerges From Bankruptcy, Faces Challenges

On Tuesday, the disgraced WorldCom Inc. faded into the murky world of bankruptcy courts and SEC investigations, while its ongoing business emerged as a relatively healthy MCI freed from $35 billion in debt and itching to enter the telecommunications brawl.

The company put an upbeat spin on its future, citing both its strong business- and residential-customer base and healthy position in Internet-based technology. In a statement, MCI said: "Despite seismic shifts in the telecom industry, Internet usage is still increasing, people are communicating more often and in more ways and computing and communications are converging. This convergence unquestionably plays to MCI's core strengths."

But immediately looming are the traditional bugbears of telecom--price wars and forced downsizings. Helped by the erasure of much of its debt, MCI can now be a formidable competitor. MCI's rivals have long complained that the company was able to erase most of its debt and they weren't.

"It's a legitimate criticism," said Kevin Mitchell, managing analyst at Infonetics Research in an interview. "MCI's competitors built up debt, but they didn't get the benefit [of bankruptcy]." Mitchell said no indications of a price war have emerged yet, but the threat looms.

He endorsed the company's plan to concentrate on its business customers. "Business is where the salvation of the company is," he said. "It's ultimately where the good margins are--they are much higher per customer in business." The company said it plans to be aggressive, too, in the residential market.

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